Do you trust the current value of your portfolio?

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flyingaway
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Re: Do you trust the current value of your portfolio?

Post by flyingaway »

skor99 wrote: Fri Apr 02, 2021 10:24 am OP, Just go to 100 % cash.. You can surely trust that. Get back in when you think the market is at more reasonable levels , which btw could be higher than what it is now
I look at other threads on this forum, more people are talking about hyper-inflation.
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TheTimeLord
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Re: Do you trust the current value of your portfolio?

Post by TheTimeLord »

flyingaway wrote: Thu Apr 01, 2021 11:18 am I have a number for my retirement. However, the number was reached far faster than I expected. So I am seriously considering to retire at the end of this year or next year (dependent upon my son's employment status).

When I read around (on similar forums), it seems that everyone's portfolio grows a lot in the past few years. In something like "can I retire now?" questions, people post big numbers. Those posts make me think if my portfolio is inflated due to the run-ups of the past few years and should be discounted in making retirement calculations and decisions? (I have a classic 3-fund portfolio, no bitcoin or QQQ or Tesla, etc.)

I would like to hear thoughts and advices from forum members regarding this matter, i.e., do you trust the current value of your portfolio in making your retirement decision? If not, how much do you discount it?
First let me say I am no fan of the skin of my teeth retirement plans where one tortures numbers until they fit. That said unless your AA is extremely equity heavy or you expect a repeat of the Great Depression I am not sure how much trust you need. If you have a 25X and a 60/40 AA and the market drops 50% you still have 70% of your original portfolio which is 17.5X. If you are really that concerned the adjust your AA or wait until you hit 30X. If you have 30X and a 50/50 AA and the market drops 50% you still have 75% of your original portfolio which is 22.5X.

I think a key question is are you willing to exclusively live off your bond holdings for several years hoping your equity holdings recover. If you are good with that scenario the question then becomes how many years of expenses do you need to have in safe fixed income to feel comfortable.
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bltn
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Re: Do you trust the current value of your portfolio?

Post by bltn »

TomatoTomahto wrote: Thu Apr 01, 2021 11:27 am I am ridiculously conservative and discount our net worth around 50%. We could get by on a 1-2% withdrawal rate.
I, too, am conservative. But with a 40% allocation to fixed income, including primarily ultra short term and short term bonds and cds, a 40% drop in the stock market knocks 25% off our portfolio. Our expenditures stay the same.
Does your 50% discount imply that you re invested 100% in stocks? Or in leveraged stock investments? Those wouldn't t be consistent with my view of financial conservatism.
You probably mean that with such a low current withdrawal rate for expenses, your could withdraw the same amount from a portfolio half the size of yours and not exceed the classic 4% rate.
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Re: Do you trust the current value of your portfolio?

Post by michaeljc70 »

Escapevelocity wrote: Fri Apr 02, 2021 10:16 am
michaeljc70 wrote: Fri Apr 02, 2021 7:52 am
beyou wrote: Fri Apr 02, 2021 7:37 am Don’t retire until your assets are sufficient with a conservative asset allocation. If your retirement is “feasible” only under some generous growth assumptions and and aggressive AA, then it’s not really feasible in a trustworthy manner.

I decided for me that a 40/60 portfolio AT RETIREMENT will dampen enough volatility but have enough growth to deal with inflation. I also decided on the overall strategy and AA after reading about the v shaped equity glidepath that protects against unfavorable sequence of return risk.

https://www.kitces.com/blog/managing-po ... -red-zone/

https://www.bogleheads.org/wiki/User:Le ... eturn_risk

Before jumping on 40/60 being too conservative,
read the kitces link above. Again the plan is NOT to remain at 40/60.
I read the article and get the concept, but using the 4% rule of 25 x expenses 40/60 gives you 15 years of expenses in bonds. The average bear market since WWII has been 13 months. I am guessing but I would bet that running this strategy through a simulator that uses real data would find it less favorable than just going with a straight 60/40 up to leading and through retirement. The opportunity losses in equities using a lot of bonds 10 years up to and 10 more years in retirement would outweigh the protection from the bonds in my view. Way too conservative for me but to each his own.
I think you missed the part about the rising equity. The absolute amount invested in bonds peaks at the time of retirement (or slightly ahead of). After that, by spending down the bond portion and allowing the stocks to run, you will work back to a 60/40 in several years depending on the actual portfolio returns.
I didn't miss it. It doesn't give a specific schedule so the degree depends on the timing you use ("further research is necessary to determine the exact ideal shape of this “bond tent”"). If you use an abrupt timing I think that is defeating the purpose of the tent. With 60/40 (using the 4% rule) you have 10 years of expenses that aren't in equities. Unless you are expecting something like the Great Depression, this seems unnecessary to me. It also seems a little odd to me in that if you are very conservative why would you go to 60/40 in retirement and not 30/70 or something like that? But I read people posting about 1% SWR so everyone has to do what they think is right for them.
Last edited by michaeljc70 on Fri Apr 02, 2021 10:46 am, edited 1 time in total.
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Re: Do you trust the current value of your portfolio?

Post by beyou »

michaeljc70 wrote: Fri Apr 02, 2021 7:52 am
beyou wrote: Fri Apr 02, 2021 7:37 am Don’t retire until your assets are sufficient with a conservative asset allocation. If your retirement is “feasible” only under some generous growth assumptions and and aggressive AA, then it’s not really feasible in a trustworthy manner.

I decided for me that a 40/60 portfolio AT RETIREMENT will dampen enough volatility but have enough growth to deal with inflation. I also decided on the overall strategy and AA after reading about the v shaped equity glidepath that protects against unfavorable sequence of return risk.

https://www.kitces.com/blog/managing-po ... -red-zone/

https://www.bogleheads.org/wiki/User:Le ... eturn_risk

Before jumping on 40/60 being too conservative,
read the kitces link above. Again the plan is NOT to remain at 40/60.
I read the article and get the concept, but using the 4% rule of 25 x expenses 40/60 gives you 15 years of expenses in bonds. The average bear market since WWII has been 13 months. I am guessing but I would bet that running this strategy through a simulator that uses real data would find it less favorable than just going with a straight 60/40 up to leading and through retirement. The opportunity losses in equities using a lot of bonds 10 years up to and 10 more years in retirement would outweigh the protection from the bonds in my view. Way too conservative for me but to each his own.
Since ww2 ? So we can’t have another depression ?
Then go 100% equities.

Another discussion here spoke about SS. One of the reasons I think the v shaped AA works is as you approach optimal age to take SS, essentially you start receiving a bond like fixed income return. This can allow you to take on more equity exposure. At that point you are also funding a shorter lifespan (say comparing AA for a 50 year old vs 70 year old starting SS). At that point more equity is both a hedge for living longer than avg or a way to leave more to heirs if not.

Finally the size of your portfolio matters alot.
40% of one portfolio could be larger than 60% of another. There is the idea that at some point, why keep playing the game if you have won ? Unfortanately for a smaller portfolio, one might “need” to take more risk, higher equity, and in such case the answer to the op is to NOT trust yet, your portfolio is not big enough to retire if you can’t afford to reduce equity, whether the reduction is by choice AA or through market correction.
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Re: Do you trust the current value of your portfolio?

Post by michaeljc70 »

beyou wrote: Fri Apr 02, 2021 10:46 am
michaeljc70 wrote: Fri Apr 02, 2021 7:52 am
beyou wrote: Fri Apr 02, 2021 7:37 am Don’t retire until your assets are sufficient with a conservative asset allocation. If your retirement is “feasible” only under some generous growth assumptions and and aggressive AA, then it’s not really feasible in a trustworthy manner.

I decided for me that a 40/60 portfolio AT RETIREMENT will dampen enough volatility but have enough growth to deal with inflation. I also decided on the overall strategy and AA after reading about the v shaped equity glidepath that protects against unfavorable sequence of return risk.

https://www.kitces.com/blog/managing-po ... -red-zone/

https://www.bogleheads.org/wiki/User:Le ... eturn_risk

Before jumping on 40/60 being too conservative,
read the kitces link above. Again the plan is NOT to remain at 40/60.
I read the article and get the concept, but using the 4% rule of 25 x expenses 40/60 gives you 15 years of expenses in bonds. The average bear market since WWII has been 13 months. I am guessing but I would bet that running this strategy through a simulator that uses real data would find it less favorable than just going with a straight 60/40 up to leading and through retirement. The opportunity losses in equities using a lot of bonds 10 years up to and 10 more years in retirement would outweigh the protection from the bonds in my view. Way too conservative for me but to each his own.
Since ww2 ? So we can’t have another depression ?
Then go 100% equities.

Another discussion here spoke about SS. One of the reasons I think the v shaped AA works is as you approach optimal age to take SS, essentially you start receiving a bond like fixed income return. This can allow you to take on more equity exposure. At that point you are also funding a shorter lifespan (say comparing AA for a 50 year old vs 70 year old starting SS). At that point more equity is both a hedge for living longer than avg or a way to leave more to heirs if not.

Finally the size of your portfolio matters alot.
40% of one portfolio could be larger than 60% of another. There is the idea that at some point, why keep playing the game if you have won ? Unfortanately for a smaller portfolio, one might “need” to take more risk, higher equity, and in such case the answer to the op is to NOT trust yet, your portfolio is not big enough to retire if you can’t afford to reduce equity, whether the reduction is by choice AA or through market correction.
The average bear market since 1928 was 10 months, so shorter than since WWII.

Of course there could be another depression. The Great Depression involved many policy mistakes that I don't think would be made again though. When doing my retirement planning, I used all relevant/accurate data I could find so I did take into account the Great Depression. But I chose to cut back on spending if something like that happens rather than work 5 or 10 more years because of an unlikely event. Even if something like that does happen I won't be living under a bridge.
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Re: Do you trust the current value of your portfolio?

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bltn wrote: Fri Apr 02, 2021 10:41 am
TomatoTomahto wrote: Thu Apr 01, 2021 11:27 am I am ridiculously conservative and discount our net worth around 50%. We could get by on a 1-2% withdrawal rate.
I, too, am conservative. But with a 40% allocation to fixed income, including primarily ultra short term and short term bonds and cds, a 40% drop in the stock market knocks 25% off our portfolio. Our expenditures stay the same.
Does your 50% discount imply that you re invested 100% in stocks? Or in leveraged stock investments? Those wouldn't t be consistent with my view of financial conservatism.
You probably mean that with such a low current withdrawal rate for expenses, your could withdraw the same amount from a portfolio half the size of yours and not exceed the classic 4% rate.
We are not 100% stocks, but all new money goes 100% to stocks and dividends are reinvested. Our “safe-ish” assets (mostly Stable Value funds and TBM) just reinvest dividends, and are somewhat north of where we started ($3M). My wife is still working, so no withdrawals for the next few years.

I guess what I meant by “discounting NW by 50%” is that I ask myself “would we be in deep yogurt if our NW fell to half of what it is?” We’d be okay. If it fell a lot more than that, we would probably have to be more careful. If it fell by 90%, we’d probably have to cut back our lifestyle.
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Re: Do you trust the current value of your portfolio?

Post by bgf »

TomatoTomahto wrote: Fri Apr 02, 2021 11:30 am
bltn wrote: Fri Apr 02, 2021 10:41 am
TomatoTomahto wrote: Thu Apr 01, 2021 11:27 am I am ridiculously conservative and discount our net worth around 50%. We could get by on a 1-2% withdrawal rate.
I, too, am conservative. But with a 40% allocation to fixed income, including primarily ultra short term and short term bonds and cds, a 40% drop in the stock market knocks 25% off our portfolio. Our expenditures stay the same.
Does your 50% discount imply that you re invested 100% in stocks? Or in leveraged stock investments? Those wouldn't t be consistent with my view of financial conservatism.
You probably mean that with such a low current withdrawal rate for expenses, your could withdraw the same amount from a portfolio half the size of yours and not exceed the classic 4% rate.
We are not 100% stocks, but all new money goes 100% to stocks and dividends are reinvested. Our “safe-ish” assets (mostly Stable Value funds and TBM) just reinvest dividends, and are somewhat north of where we started ($3M). My wife is still working, so no withdrawals for the next few years.

I guess what I meant by “discounting NW by 50%” is that I ask myself “would we be in deep yogurt if our NW fell to half of what it is?” We’d be okay. If it fell a lot more than that, we would probably have to be more careful. If it fell by 90%, we’d probably have to cut back our lifestyle.
this is basically my definition of what it means to be wealthy. you have sufficient wealth such that getting cut in half doesn't immediately affect you.
that is real, practical margin for error.

the 90% thing is less important to me because everyone, no matter how much wealth you have, can be forced to completely readjust in crisis, eg., very wealthy people forced to flee their country and leave all possessions behind.

for me personally, im not at this stage of wealth. i do not discount the value of my portfolio. it is what the market tells me it is on any given day. at that the same time, i do not expect to make any withdrawals from my portfolio for many many years. so, practically speaking, it could be a black box to me and wouldn't change anything.
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Re: Do you trust the current value of your portfolio?

Post by MikeG62 »

flyingaway wrote: Fri Apr 02, 2021 9:14 am
MikeG62 wrote: Fri Apr 02, 2021 8:48 am
flyingaway wrote: Thu Apr 01, 2021 1:59 pm
TomatoTomahto wrote: Thu Apr 01, 2021 11:27 am I am ridiculously conservative and discount our net worth around 50%. We could get by on a 1-2% withdrawal rate.
I have to work for probably another 10 years for that kind of conservatism. At this time, I really want to get out if my portfolio is accurately reflecting its value regarding retirement.
What are you assuming for an annual withdrawal rate? In my mind, that is key.

For example, if you were planning on say a 4.0% inital WD rate, maybe retiring into what you think is a frothy market, plan on using a low to mid 3.0% initial WD rate. It's just another way of building some cushion into your modeling. This doesn't mean hack back your spending to meet that lower withdrawal level. It means wait until your portfolio will support the spending you've been envisioning.
I will be using a 3% withdrawal rate initially. It does not mean that I do not trust the 4% rule. My problem with all SWR is that the base (the expenses) is difficult to estimate. I know how much I may spend, but I don't know how much I want to spend.
Well starting at 3.0% adds a considerably margin of safety. If you are ignoring SS, that adds more even conservatism.

As far as expenses go, develop a bottoms up budget. Start with what you spend now and adjust for expenses that will either decline or go away as well as for those that will increase or begin. Without this estimate of expenses, it's hard to know what your initial WD rate will be.

What I will say is we spend more in retirement than we did while I was working. Previously, we lived well below out means. We now live up to the level of our means.
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Re: Do you trust the current value of your portfolio?

Post by TheTimeLord »

flyingaway wrote: Fri Apr 02, 2021 9:14 am
MikeG62 wrote: Fri Apr 02, 2021 8:48 am
flyingaway wrote: Thu Apr 01, 2021 1:59 pm
TomatoTomahto wrote: Thu Apr 01, 2021 11:27 am I am ridiculously conservative and discount our net worth around 50%. We could get by on a 1-2% withdrawal rate.
I have to work for probably another 10 years for that kind of conservatism. At this time, I really want to get out if my portfolio is accurately reflecting its value regarding retirement.
What are you assuming for an annual withdrawal rate? In my mind, that is key.

For example, if you were planning on say a 4.0% inital WD rate, maybe retiring into what you think is a frothy market, plan on using a low to mid 3.0% initial WD rate. It's just another way of building some cushion into your modeling. This doesn't mean hack back your spending to meet that lower withdrawal level. It means wait until your portfolio will support the spending you've been envisioning.
I will be using a 3% withdrawal rate initially. It does not mean that I do not trust the 4% rule. My problem with all SWR is that the base (the expenses) is difficult to estimate. I know how much I may spend, but I don't know how much I want to spend.
SWR gives you an estimate of how much you can spend, you have to try to figure out how much you want/need to spend. I am not understanding why you would start with a 3% initial rate, especially since you seem to think the equities you would be initially selling are somewhat overvalued.
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flyingaway
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Re: Do you trust the current value of your portfolio?

Post by flyingaway »

MikeG62 wrote: Fri Apr 02, 2021 11:50 am
flyingaway wrote: Fri Apr 02, 2021 9:14 am
MikeG62 wrote: Fri Apr 02, 2021 8:48 am
flyingaway wrote: Thu Apr 01, 2021 1:59 pm
TomatoTomahto wrote: Thu Apr 01, 2021 11:27 am I am ridiculously conservative and discount our net worth around 50%. We could get by on a 1-2% withdrawal rate.
I have to work for probably another 10 years for that kind of conservatism. At this time, I really want to get out if my portfolio is accurately reflecting its value regarding retirement.
What are you assuming for an annual withdrawal rate? In my mind, that is key.

For example, if you were planning on say a 4.0% inital WD rate, maybe retiring into what you think is a frothy market, plan on using a low to mid 3.0% initial WD rate. It's just another way of building some cushion into your modeling. This doesn't mean hack back your spending to meet that lower withdrawal level. It means wait until your portfolio will support the spending you've been envisioning.
I will be using a 3% withdrawal rate initially. It does not mean that I do not trust the 4% rule. My problem with all SWR is that the base (the expenses) is difficult to estimate. I know how much I may spend, but I don't know how much I want to spend.
Well starting at 3.0% adds a considerably margin of safety. If you are ignoring SS, that adds more even conservatism.

As far as expenses go, develop a bottoms up budget. Start with what you spend now and adjust for expenses that will either decline or go away as well as for those that will increase or begin. Without this estimate of expenses, it's hard to know what your initial WD rate will be.

What I will say is we spend more in retirement than we did while I was working. Previously, we lived well below out means. We now live up to the level of our means.
I like the bottom up budget approach. In fact, I can say that our minimum budget (normal living expenses, health insurance & costs, taxes, etc.) can be bounded at $60k. It is the discretionary spending that is difficult to estimate, travel $20k+, that "+" could be very large if I retire mainly for the purpose of travel. I can have entertainment ($20k), (potential) support for family members (how much?), etc. added.

I am usually baffled by some people's strategy to adjust expenses in retirement. One common strategy is to stop travel for a few years when the market is down. OK, you might not be able to travel when the market is recovered, because you may be dead, your health may be deteriorated to not allow travel, etc.
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Re: Do you trust the current value of your portfolio?

Post by TheTimeLord »

flyingaway wrote: Fri Apr 02, 2021 12:46 pm
MikeG62 wrote: Fri Apr 02, 2021 11:50 am
flyingaway wrote: Fri Apr 02, 2021 9:14 am
MikeG62 wrote: Fri Apr 02, 2021 8:48 am
flyingaway wrote: Thu Apr 01, 2021 1:59 pm

I have to work for probably another 10 years for that kind of conservatism. At this time, I really want to get out if my portfolio is accurately reflecting its value regarding retirement.
What are you assuming for an annual withdrawal rate? In my mind, that is key.

For example, if you were planning on say a 4.0% inital WD rate, maybe retiring into what you think is a frothy market, plan on using a low to mid 3.0% initial WD rate. It's just another way of building some cushion into your modeling. This doesn't mean hack back your spending to meet that lower withdrawal level. It means wait until your portfolio will support the spending you've been envisioning.
I will be using a 3% withdrawal rate initially. It does not mean that I do not trust the 4% rule. My problem with all SWR is that the base (the expenses) is difficult to estimate. I know how much I may spend, but I don't know how much I want to spend.
Well starting at 3.0% adds a considerably margin of safety. If you are ignoring SS, that adds more even conservatism.

As far as expenses go, develop a bottoms up budget. Start with what you spend now and adjust for expenses that will either decline or go away as well as for those that will increase or begin. Without this estimate of expenses, it's hard to know what your initial WD rate will be.

What I will say is we spend more in retirement than we did while I was working. Previously, we lived well below out means. We now live up to the level of our means.
I like the bottom up budget approach. In fact, I can say that our minimum budget (normal living expenses, health insurance & costs, taxes, etc.) can be bounded at $60k. It is the discretionary spending that is difficult to estimate, travel $20k+, that "+" could be very large if I retire mainly for the purpose of travel. I can have entertainment ($20k), (potential) support for family members (how much?), etc. added.

I am usually baffled by some people's strategy to adjust expenses in retirement. One common strategy is to stop travel for a few years when the market is down. OK, you might not be able to travel when the market is recovered, because you may be dead, your health may be deteriorated to not allow travel, etc.
If that is a concern you could try a Bond Tent or just set aside the money to cover travel in your early years when you retire. You may lose some possible gains but you lock in what you are saying is important to you.
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Re: Do you trust the current value of your portfolio?

Post by Vanguard Fan 1367 »

flyingaway wrote: Thu Apr 01, 2021 11:18 am I have a number for my retirement. However, the number was reached far faster than I expected. So I am seriously considering to retire at the end of this year or next year (dependent upon my son's employment status).

When I read around (on similar forums), it seems that everyone's portfolio grows a lot in the past few years. In something like "can I retire now?" questions, people post big numbers. Those posts make me think if my portfolio is inflated due to the run-ups of the past few years and should be discounted in making retirement calculations and decisions? (I have a classic 3-fund portfolio, no bitcoin or QQQ or Tesla, etc.)





I try to be ready for a 50% drop or greater with delaying drawing my SS till I am 70. I also have rental income. I don’t trust the current value of my portfolio.
Last edited by Vanguard Fan 1367 on Fri Apr 02, 2021 1:08 pm, edited 2 times in total.
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Re: Do you trust the current value of your portfolio?

Post by corn18 »

flyingaway wrote: Fri Apr 02, 2021 12:46 pm
MikeG62 wrote: Fri Apr 02, 2021 11:50 am
flyingaway wrote: Fri Apr 02, 2021 9:14 am
MikeG62 wrote: Fri Apr 02, 2021 8:48 am
flyingaway wrote: Thu Apr 01, 2021 1:59 pm

I have to work for probably another 10 years for that kind of conservatism. At this time, I really want to get out if my portfolio is accurately reflecting its value regarding retirement.
What are you assuming for an annual withdrawal rate? In my mind, that is key.

For example, if you were planning on say a 4.0% inital WD rate, maybe retiring into what you think is a frothy market, plan on using a low to mid 3.0% initial WD rate. It's just another way of building some cushion into your modeling. This doesn't mean hack back your spending to meet that lower withdrawal level. It means wait until your portfolio will support the spending you've been envisioning.
I will be using a 3% withdrawal rate initially. It does not mean that I do not trust the 4% rule. My problem with all SWR is that the base (the expenses) is difficult to estimate. I know how much I may spend, but I don't know how much I want to spend.
Well starting at 3.0% adds a considerably margin of safety. If you are ignoring SS, that adds more even conservatism.

As far as expenses go, develop a bottoms up budget. Start with what you spend now and adjust for expenses that will either decline or go away as well as for those that will increase or begin. Without this estimate of expenses, it's hard to know what your initial WD rate will be.

What I will say is we spend more in retirement than we did while I was working. Previously, we lived well below out means. We now live up to the level of our means.
I like the bottom up budget approach. In fact, I can say that our minimum budget (normal living expenses, health insurance & costs, taxes, etc.) can be bounded at $60k. It is the discretionary spending that is difficult to estimate, travel $20k+, that "+" could be very large if I retire mainly for the purpose of travel. I can have entertainment ($20k), (potential) support for family members (how much?), etc. added.

I am usually baffled by some people's strategy to adjust expenses in retirement. One common strategy is to stop travel for a few years when the market is down. OK, you might not be able to travel when the market is recovered, because you may be dead, your health may be deteriorated to not allow travel, etc.
I think there are degrees of adjustment.

I have a base budget of $83k that covers all expenses except pure discretionary (travel, charity, big spending entertainment). There is 10% of semi-discretionary spending in there, but I would not even consider retiring if I thought I had to cut this budget. I can cover this with no equities.

I have a $25k discretionary budget. This is my minimum. I would not retire unless I could cover this amount of discretionary spending. I can handle a 50% drop in equities and maintain this level of spending. It would take a really black swan to force me to cut this, but we could.

So those are my two benchmarks for deciding if I could retire.

When I pulled the trigger and retired 20 days ago, we had enough to cover the base budget and $50k of annual discretionary spending. If the market went down 50% on Monday, we would stick to our base + $25k plan for a few years and see how things went.

I think this is a good approach to deciding if you can retire. Plan for the worst, hope for the best and be prepared for any reasonable sequence of risks. I don't plan for apocalyptic type stuff. Retirement would suck if that were on my radar. I'm a rainbows and unicorns kindof guy, so I'll deal with that when it happens (if it happens).
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Re: Do you trust the current value of your portfolio?

Post by hudson »

flyingaway wrote: Fri Apr 02, 2021 9:14 am I will be using a 3% withdrawal rate initially. It does not mean that I do not trust the 4% rule. My problem with all SWR is that the base (the expenses) is difficult to estimate. I know how much I may spend, but I don't know how much I want to spend.
It looks like you're doing your homework and you're on the right track.
Consider reading Bernstein's Ages of the Investor, book 1.
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Re: Do you trust the current value of your portfolio?

Post by flyingaway »

corn18 wrote:Fri Apr 02, 2021 1:01 pm So those are my two benchmarks for deciding if I could retire.

When I pulled the trigger and retired 20 days ago, we had enough to cover the base budget and $50k of annual discretionary spending. If the market went down 50% on Monday, we would stick to our base + $25k plan for a few years and see how things went.

I think this is a good approach to deciding if you can retire. Plan for the worst, hope for the best and be prepared for any reasonable sequence of risks. I don't plan for apocalyptic type stuff. Retirement would suck if that were on my radar. I'm a rainbows and unicorns kindof guy, so I'll deal with that when it happens (if it happens).
Your approach looks similar to the ones that we discussed earlier as three levels of financial independence (or retirement spending), the basic level, the comfortable level, and the luxurious level. Maybe we can retire at the comfortable level, and jump around according to market performance.
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Re: Do you trust the current value of your portfolio?

Post by flyingaway »

TheTimeLord wrote: Fri Apr 02, 2021 12:57 pm
flyingaway wrote: Fri Apr 02, 2021 12:46 pm I like the bottom up budget approach. In fact, I can say that our minimum budget (normal living expenses, health insurance & costs, taxes, etc.) can be bounded at $60k. It is the discretionary spending that is difficult to estimate, travel $20k+, that "+" could be very large if I retire mainly for the purpose of travel. I can have entertainment ($20k), (potential) support for family members (how much?), etc. added.

I am usually baffled by some people's strategy to adjust expenses in retirement. One common strategy is to stop travel for a few years when the market is down. OK, you might not be able to travel when the market is recovered, because you may be dead, your health may be deteriorated to not allow travel, etc.
If that is a concern you could try a Bond Tent or just set aside the money to cover travel in your early years when you retire. You may lose some possible gains but you lock in what you are saying is important to you.
Yes, I am building a bond tent as I said in some threads two or three years ago, I am just not sure what is the percentage of bond funds that I should have. I started at 70/30, and have been moving to 60/40, but the market just keeps pushing me back.
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Re: Do you trust the current value of your portfolio?

Post by Barsoom »

I think there is a difference between a portfolio's paper value and it's ability to generate cash.

At the height of the COVID-19 lockdown, my portfolio dropped by 25%, but its cash generation was unchanged. Currently, my cash generation covers my living expenses, and the only thing I have to withdraw from investments is taxes.

Of course, if things got a lot worse, dividends could have been cut, but it didn't get to that point and now the value has mostly recovered. If I'm not planning on selling, I don't worry about the drop in value as long as the cash payments are unaffected.

-B
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Re: Do you trust the current value of your portfolio?

Post by corn18 »

Barsoom wrote: Fri Apr 02, 2021 2:55 pm I think there is a difference between a portfolio's paper value and it's ability to generate cash.

At the height of the COVID-19 lockdown, my portfolio dropped by 25%, but its cash generation was unchanged. Currently, my cash generation covers my living expenses, and the only thing I have to withdraw from investments is taxes.

Of course, if things got a lot worse, dividends could have been cut, but it didn't get to that point and now the value has mostly recovered. If I'm not planning on selling, I don't worry about the drop in value as long as the cash payments are unaffected.

-B
My classic boglehead three fund portfolio generates very little cash.
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Re: Do you trust the current value of your portfolio?

Post by Barsoom »

corn18 wrote: Fri Apr 02, 2021 2:58 pm
Barsoom wrote: Fri Apr 02, 2021 2:55 pm I think there is a difference between a portfolio's paper value and it's ability to generate cash.

At the height of the COVID-19 lockdown, my portfolio dropped by 25%, but its cash generation was unchanged. Currently, my cash generation covers my living expenses, and the only thing I have to withdraw from investments is taxes.

Of course, if things got a lot worse, dividends could have been cut, but it didn't get to that point and now the value has mostly recovered. If I'm not planning on selling, I don't worry about the drop in value as long as the cash payments are unaffected.

-B
My classic boglehead three fund portfolio generates very little cash.
That's a good point, because I'm still heavy in MegaCorp stock, which generates a lot of cash. I don't have a BH three-fund portfolio.

-B
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Re: Do you trust the current value of your portfolio?

Post by TheTimeLord »

flyingaway wrote: Fri Apr 02, 2021 2:43 pm
TheTimeLord wrote: Fri Apr 02, 2021 12:57 pm
flyingaway wrote: Fri Apr 02, 2021 12:46 pm I like the bottom up budget approach. In fact, I can say that our minimum budget (normal living expenses, health insurance & costs, taxes, etc.) can be bounded at $60k. It is the discretionary spending that is difficult to estimate, travel $20k+, that "+" could be very large if I retire mainly for the purpose of travel. I can have entertainment ($20k), (potential) support for family members (how much?), etc. added.

I am usually baffled by some people's strategy to adjust expenses in retirement. One common strategy is to stop travel for a few years when the market is down. OK, you might not be able to travel when the market is recovered, because you may be dead, your health may be deteriorated to not allow travel, etc.
If that is a concern you could try a Bond Tent or just set aside the money to cover travel in your early years when you retire. You may lose some possible gains but you lock in what you are saying is important to you.
Yes, I am building a bond tent as I said in some threads two or three years ago, I am just not sure what is the percentage of bond funds that I should have. I started at 70/30, and have been moving to 60/40, but the market just keeps pushing me back.
Personally, whether it was a new car or a bucket list trip I would consider just putting the money in no penalty CDs or I bonds (to their allowable limit) for expenditures more than 5 years out. There are things I want to do early in my retirement that are definitely my top priorities.
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Re: Do you trust the current value of your portfolio?

Post by dcabler »

aj76er wrote: Thu Apr 01, 2021 5:41 pm A few years ago I created a VPW spreadsheet and am tracking (theoretical) withdrawals assuming:

Lifespan: 120
Average Equity growth: 4% real
Average Fixed Income growth: 0% real

Each new year, I calculate the value of withdrawal using the beginning-of-year balance. Occasionally, I mentally calculate what the withdrawal would be with a 50% decline in equities. When that number feels comfortable (i.e. can sustain healthy lifestyle) then I’m ready to retire.

I think everyone should do this 5-10 years prior to retirement just to get in the habit of thinking about converting the portfolio into a stream of income.
I do likewise, but with VPW's first cousin, my own version of ABW, which doesn't assume anything about equity or fixed income growth, but uses valuations, interest rates, and expected inflation. Regardless of the method one plans on using for withdrawal - agree that one should start to do this periodically as one get closer to retirement, including an assumption of whatever decline makes sense to you.

Cheers.
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Re: Do you trust the current value of your portfolio?

Post by MikeG62 »

flyingaway wrote: Fri Apr 02, 2021 12:46 pm
MikeG62 wrote: Fri Apr 02, 2021 11:50 am
flyingaway wrote: Fri Apr 02, 2021 9:14 am
MikeG62 wrote: Fri Apr 02, 2021 8:48 am
flyingaway wrote: Thu Apr 01, 2021 1:59 pm

I have to work for probably another 10 years for that kind of conservatism. At this time, I really want to get out if my portfolio is accurately reflecting its value regarding retirement.
What are you assuming for an annual withdrawal rate? In my mind, that is key.

For example, if you were planning on say a 4.0% inital WD rate, maybe retiring into what you think is a frothy market, plan on using a low to mid 3.0% initial WD rate. It's just another way of building some cushion into your modeling. This doesn't mean hack back your spending to meet that lower withdrawal level. It means wait until your portfolio will support the spending you've been envisioning.
I will be using a 3% withdrawal rate initially. It does not mean that I do not trust the 4% rule. My problem with all SWR is that the base (the expenses) is difficult to estimate. I know how much I may spend, but I don't know how much I want to spend.
Well starting at 3.0% adds a considerably margin of safety. If you are ignoring SS, that adds more even conservatism.

As far as expenses go, develop a bottoms up budget. Start with what you spend now and adjust for expenses that will either decline or go away as well as for those that will increase or begin. Without this estimate of expenses, it's hard to know what your initial WD rate will be.

What I will say is we spend more in retirement than we did while I was working. Previously, we lived well below out means. We now live up to the level of our means.
I like the bottom up budget approach. In fact, I can say that our minimum budget (normal living expenses, health insurance & costs, taxes, etc.) can be bounded at $60k. It is the discretionary spending that is difficult to estimate, travel $20k+, that "+" could be very large if I retire mainly for the purpose of travel. I can have entertainment ($20k), (potential) support for family members (how much?), etc. added.
I don’t view our spending this way, but understand reasonable minds could differ. I view our discretionary (T&E) to be as central to our budget as our fixed or non-discretionary. In other words, if I can’t afford the discretionary than my retirement plan has failed.

I do think you should try and figure out what kind of retirement experience you want to have and make sure the numbers work with that in mind. This would include all expected spending.
flyingaway wrote: Fri Apr 02, 2021 12:46 pm
I am usually baffled by some people's strategy to adjust expenses in retirement. One common strategy is to stop travel for a few years when the market is down. OK, you might not be able to travel when the market is recovered, because you may be dead, your health may be deteriorated to not allow travel, etc.
I agree with you here. To me the idea of a safe withdrawal rate is that you don’t need to move your expenses up and down in a large way from year to year based upon the market’s performance. Things smooth out over time and a down year is typically followed by a decent one. I guess if one were cutting it really close they might panic and slam the breaks on spending. But if one has a reasonable plan they should not need to do this.
Last edited by MikeG62 on Sat Apr 03, 2021 7:31 am, edited 1 time in total.
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Re: Do you trust the current value of your portfolio?

Post by vitaflo »

I've thought about this because it seems logical that if you would have reached your "number" during a market crash you would have had more than your number before the crash. So people almost always will reach their number on the upswing and of course that can cause concern if you get there earlier than expected (a large upswing in the market).

I'm not sure how to counteract this other than to work longer "just in case" or assume SWR is actually safe and this is all already taken into account. Like most things, whatever helps you sleep at night is probably the right answer for you.
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Re: Do you trust the current value of your portfolio?

Post by corn18 »

vitaflo wrote: Fri Apr 02, 2021 5:20 pm I've thought about this because it seems logical that if you would have reached your "number" during a market crash you would have had more than your number before the crash. So people almost always will reach their number on the upswing and of course that can cause concern if you get there earlier than expected (a large upswing in the market).

I'm not sure how to counteract this other than to work longer "just in case" or assume SWR is actually safe and this is all already taken into account. Like most things, whatever helps you sleep at night is probably the right answer for you.
The folks that retired before any crash made out just fine if they had a WR of 3.8% or less with a 60/40 portfolio. The poor saps that retired in the mid to late 60's got hammered by flat real returns followed by nasty inflation. Something to keep in mind when deciding how many worry beads you need for a crash. Crashes are kindof like a cold. Irritating for a while but probably won't kill you. Flat real returns with high inflation is more like being slowly digested by a Sarlacc over 1,000 years. Or maybe a frog in water that is slowly being heated to boiling.
Last edited by corn18 on Fri Apr 02, 2021 5:35 pm, edited 2 times in total.
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Re: Do you trust the current value of your portfolio?

Post by vitaflo »

corn18 wrote: Fri Apr 02, 2021 5:24 pm
vitaflo wrote: Fri Apr 02, 2021 5:20 pm I've thought about this because it seems logical that if you would have reached your "number" during a market crash you would have had more than your number before the crash. So people almost always will reach their number on the upswing and of course that can cause concern if you get there earlier than expected (a large upswing in the market).

I'm not sure how to counteract this other than to work longer "just in case" or assume SWR is actually safe and this is all already taken into account. Like most things, whatever helps you sleep at night is probably the right answer for you.
The folks that retired before any crash made out just fine if they had a WR of 3.8% or less with a 60/40 portfolio. The poor saps that retired in the mid to late 60's got hammered by flat real returns followed by nasty inflation. Something to keep in mind when deciding how many worry beads you need for a crash. Crashes are kindof like a cold. Irritating for a while but probably won't kill you. Flat real returns with high inflation is more like being digested by a Sarlacc over 1,000 years.
This is a good point that we probably don't discuss enough here (at least in relation to market crashes).
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Re: Do you trust the current value of your portfolio?

Post by SQRT »

I retired in 2006 just before the crash of 08/09. I cut expenses a bit for a short time, cancelled a trip or two (an over reaction in retrospect) painless and very short lived. Onwards and upwards from then. I think flexibility is key. Spend a little more in good times and maybe a little less in bad times. My retirement spending plan was very generous with plenty of slack. Although, I have to admit it’s been virtually all good times so far. Have more now than when I retired.

By the way, I trust the value of my portfolio now, but I certainly don’t trust it to stay at this level.
Last edited by SQRT on Sun Apr 04, 2021 12:03 pm, edited 2 times in total.
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Re: Do you trust the current value of your portfolio?

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Re: Do you trust the current value of your portfolio?

Post by flyingaway »

SQRT wrote: Fri Apr 02, 2021 5:52 pm I retired in 2006 just before the crash of 08/09. I cut expenses a bit for a short time, cancelled a trip or two, painless and very short lived. Onwards and upwards from then. I think flexibility is key. Spend a little more in good times and maybe a little less in bad times. My retirement spending plan was very generous with plenty of slack. Although, I have to admit it’s been virtually all good times so far. Have more than when I retired.

By the way, I trust the value of my portfolio now, but I certainly don’t trust it to stay at that level.
Helpful first-hand experience, thank you!
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Re: Do you trust the current value of your portfolio?

Post by tibbitts »

flyingaway wrote: Thu Apr 01, 2021 1:59 pm
TomatoTomahto wrote: Thu Apr 01, 2021 11:27 am I am ridiculously conservative and discount our net worth around 50%. We could get by on a 1-2% withdrawal rate.
I have to work for probably another 10 years for that kind of conservatism. At this time, I really want to get out if my portfolio is accurately reflecting its value regarding retirement.
When I've posted about this before and have said that probably Bogleheads typically are at 1-2% SWRs, I get a lot of responses saying how outrageously conservative that is. But then in other threads we read that some use 4%, but in one way or another discount their portfolio value by 50%, or otherwise end up at... about a 1-2% SWR. So ultimately I do think that's where most Bogleheads are, and most wouldn't be really comfortable if they weren't. The key of course is that unlike most people who retire, Bogleheads probably only need at most 1% to live happily ever after. The rest is just icing on the cake that maybe buys more enjoyment.
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Re: Do you trust the current value of your portfolio?

Post by Beensabu »

flyingaway wrote: Thu Apr 01, 2021 1:59 pm
TomatoTomahto wrote: Thu Apr 01, 2021 11:27 am I am ridiculously conservative and discount our net worth around 50%. We could get by on a 1-2% withdrawal rate.
I have to work for probably another 10 years for that kind of conservatism. At this time, I really want to get out if my portfolio is accurately reflecting its value regarding retirement.
What is the percentage by which your equities allocation could drop tomorrow and you would still be able to retire tomorrow?
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Re: Do you trust the current value of your portfolio?

Post by CloseEnough »

Interesting to look back at a thread like this one, just over a year ago, in the context of the recent market conditions.
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Re: Do you trust the current value of your portfolio?

Post by JackoC »

tibbitts wrote: Fri Apr 02, 2021 8:49 pm
flyingaway wrote: Thu Apr 01, 2021 1:59 pm
TomatoTomahto wrote: Thu Apr 01, 2021 11:27 am I am ridiculously conservative and discount our net worth around 50%. We could get by on a 1-2% withdrawal rate.
I have to work for probably another 10 years for that kind of conservatism. At this time, I really want to get out if my portfolio is accurately reflecting its value regarding retirement.
When I've posted about this before and have said that probably Bogleheads typically are at 1-2% SWRs, I get a lot of responses saying how outrageously conservative that is. But then in other threads we read that some use 4%, but in one way or another discount their portfolio value by 50%, or otherwise end up at... about a 1-2% SWR. So ultimately I do think that's where most Bogleheads are, and most wouldn't be really comfortable if they weren't. The key of course is that unlike most people who retire, Bogleheads probably only need at most 1% to live happily ever after. The rest is just icing on the cake that maybe buys more enjoyment.
Is anybody really quoting a withdrawal % that already assumes a 50% portfolio reduction? Maybe, but that would be pretty confusing if the person didn't make that 100% clear. I look at a stress case where S&P returns to the low of 2009 (inflation adjusted), safe bonds decline 20%: how long does the money last assuming combined 1.5% real after tax return from that point? Separately I look at stocks -50% and the stress level (currently around -77%) and see how much the total portfolio drops, asking myself, could I stomach it*? Practically though our withdrawal level of around 1.5% theoretically** is set by the combination of 'mid point' goal to leave inflation adjusted current amount to heirs and my belief our expected after tax real return is around 1.5%***.

If it's 'ridiculously conservative' feel free to sue me. :happy Seriously, once you're retired and market value of your skills has withered that's big difference from 30/40-somes at height of career looking to hypothetical retirement. Everybody knows that, but I think it's worth underlining.

*I think I could psychologically weather, in a very bad mood, a 50% reduction in overall wealth in an epic stock meltdown like -77%, also considering I have a sizeable allocation to real estate I assume would drop 60% as much as stock. But I want to have a little more upside than the amount of stock alone which would limit my loss to 50% in that case. Therefore, I have a stock allocation that would put me below 50% total wealth in an epic meltdown, but own some SPX/XSP out-of-money puts so it would come out 50% wealth loss net.
**based on a planning spending number including 'everything', much higher than normal recurring expense, though for example lower than what we'll spend this year (partly/wholly funding 2 weddings and getting a new car). On average it probably has a bit of fluff.
***I don't think this part is especially conservative: 4% real pre tax stocks, 3.5% real pre tax our particular rental real estate not including leverage I account for separately, 0% real our house, 'safe' investments basically whatever they yield now. Almost all in taxable and we pay pretty high tax rates. Also I accrue a liability for tax on unrealized gains. The answer would go from high 1.40's% to low 1.80%'s right now assuming basis step up entirely erased unrealized gains.
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Re: Do you trust the current value of your portfolio?

Post by invest4 »

Normchad wrote: Thu Apr 01, 2021 11:44 am I completely hear what you’re saying. I had a long term plan and number in mind for retiring at 65. I reached that number 13 years early, and it was very confusing for a while. It’s weird thinking “I have enough to retire if I’m 65, but it’s not enough at 52. If only I was more geezerly, I’d be all set!”

After a few months of hard thinking, I’ve got my head on straight now. I will likely retire in the next 12 months. My initial withdrawal rate will be 3%. If the stock side of my portfolio falls 50%, I’ll still be okay.

So, I do trust it. But I’m also looking at what it means for me if it suffers a sudden downturn.
Ones number typically is based upon a 30 year retirement, no? If one has achieved their number early, then it may not be sufficient to retire (depends on how early). A good problem to have, but likely to adjust my X a bit and keep on chugging along until everything aligns a bit better. YMMV.
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Re: Do you trust the current value of your portfolio?

Post by Bama12 »

KlangFool wrote: Thu Apr 01, 2021 12:47 pm OP,

A) I keep 3 years of expense in CASH as my emergency fund and keep it separate from my portfolio.

B) I set a target for my 60/40 portfolio. At this moment, it is 1.65 million.

1) When it reaches the target, I sell 30K and pay down the mortgage. And, I buy about $2,000 worth of physical Gold or Silver.

2) I reset the target to be 30K higher. After harvesting 30K, the portfolio would be 1.62 million and the new target would be 1.68 million.

3) Essentially, for every 60K increases in my portfolio, I take away about 30K and keep 30K in my portfolio.

In summary, I have a plan to harvest the portfolio if it goes too well. And, I have a plan to protect myself if the portfolio crashes.

What is your plan?

If you are worried enough, create a plan to deal with it.

KlangFool
KlangFool- I always love reading your post. I like how you handle your money and your portfolio. What is the Larry mini
portfolio? How do you manage 3 different portfolio using taxable, IRA and 401k?
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Re: Do you trust the current value of your portfolio?

Post by KlangFool »

Bama12 wrote: Sun May 22, 2022 12:40 am
KlangFool wrote: Thu Apr 01, 2021 12:47 pm OP,

A) I keep 3 years of expense in CASH as my emergency fund and keep it separate from my portfolio.

B) I set a target for my 60/40 portfolio. At this moment, it is 1.65 million.

1) When it reaches the target, I sell 30K and pay down the mortgage. And, I buy about $2,000 worth of physical Gold or Silver.

2) I reset the target to be 30K higher. After harvesting 30K, the portfolio would be 1.62 million and the new target would be 1.68 million.

3) Essentially, for every 60K increases in my portfolio, I take away about 30K and keep 30K in my portfolio.

In summary, I have a plan to harvest the portfolio if it goes too well. And, I have a plan to protect myself if the portfolio crashes.

What is your plan?

If you are worried enough, create a plan to deal with it.

KlangFool
KlangFool- I always love reading your post. I like how you handle your money and your portfolio. What is the Larry mini
portfolio? How do you manage 3 different portfolio using taxable, IRA and 401k?
It is still one portfolio for me. I managed with a spreadsheet.

KlangFool
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Re: Do you trust the current value of your portfolio?

Post by Parkinglotracer »

KlangFool wrote: Sun May 22, 2022 6:11 am
Bama12 wrote: Sun May 22, 2022 12:40 am
KlangFool wrote: Thu Apr 01, 2021 12:47 pm OP,

A) I keep 3 years of expense in CASH as my emergency fund and keep it separate from my portfolio.

B) I set a target for my 60/40 portfolio. At this moment, it is 1.65 million.

1) When it reaches the target, I sell 30K and pay down the mortgage. And, I buy about $2,000 worth of physical Gold or Silver.

2) I reset the target to be 30K higher. After harvesting 30K, the portfolio would be 1.62 million and the new target would be 1.68 million.

3) Essentially, for every 60K increases in my portfolio, I take away about 30K and keep 30K in my portfolio.

In summary, I have a plan to harvest the portfolio if it goes too well. And, I have a plan to protect myself if the portfolio crashes.

What is your plan?

If you are worried enough, create a plan to deal with it.

KlangFool
KlangFool- I always love reading your post. I like how you handle your money and your portfolio. What is the Larry mini
portfolio? How do you manage 3 different portfolio using taxable, IRA and 401k?
It is still one portfolio for me. I managed with a spreadsheet.

KlangFool
I have similar amount of cash. Rest in t bills / notes / g fund/ total equity index. Overall 60/40.

Where does one keep this physical gold and silver?

Seems like if I am going to plan for that I should have some other things stockpiled like food, water, ability to farm, few guns and ammo. I have a shotgun and 6 to 10 shells - I figure if the home invasion or unrest goes longer than that I mis judged the threat by a magnitude of X.
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Re: Do you trust the current value of your portfolio?

Post by KlangFool »

Parkinglotracer wrote: Sun May 22, 2022 6:21 am
KlangFool wrote: Sun May 22, 2022 6:11 am
Bama12 wrote: Sun May 22, 2022 12:40 am
KlangFool wrote: Thu Apr 01, 2021 12:47 pm OP,

A) I keep 3 years of expense in CASH as my emergency fund and keep it separate from my portfolio.

B) I set a target for my 60/40 portfolio. At this moment, it is 1.65 million.

1) When it reaches the target, I sell 30K and pay down the mortgage. And, I buy about $2,000 worth of physical Gold or Silver.

2) I reset the target to be 30K higher. After harvesting 30K, the portfolio would be 1.62 million and the new target would be 1.68 million.

3) Essentially, for every 60K increases in my portfolio, I take away about 30K and keep 30K in my portfolio.

In summary, I have a plan to harvest the portfolio if it goes too well. And, I have a plan to protect myself if the portfolio crashes.

What is your plan?

If you are worried enough, create a plan to deal with it.

KlangFool
KlangFool- I always love reading your post. I like how you handle your money and your portfolio. What is the Larry mini
portfolio? How do you manage 3 different portfolio using taxable, IRA and 401k?
It is still one portfolio for me. I managed with a spreadsheet.

KlangFool
I have similar amount of cash. Rest in t bills / notes / g fund/ total equity index. Overall 60/40.

Where does one keep this physical gold and silver?

Seems like if I am going to plan for that I should have some other things stockpiled like food, water, ability to farm, few guns and ammo. I have a shotgun and 6 to 10 shells - I figure if the home invasion or unrest goes longer than that I mis judged the threat by a magnitude of X.
Correct. Food and other should be part of your preparation.

KlangFool
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Re: Do you trust the current value of your portfolio?

Post by KlangFool »

Bama12 wrote: Sun May 22, 2022 12:40 am
KlangFool wrote: Thu Apr 01, 2021 12:47 pm OP,

A) I keep 3 years of expense in CASH as my emergency fund and keep it separate from my portfolio.

B) I set a target for my 60/40 portfolio. At this moment, it is 1.65 million.

1) When it reaches the target, I sell 30K and pay down the mortgage. And, I buy about $2,000 worth of physical Gold or Silver.

2) I reset the target to be 30K higher. After harvesting 30K, the portfolio would be 1.62 million and the new target would be 1.68 million.

3) Essentially, for every 60K increases in my portfolio, I take away about 30K and keep 30K in my portfolio.

In summary, I have a plan to harvest the portfolio if it goes too well. And, I have a plan to protect myself if the portfolio crashes.

What is your plan?

If you are worried enough, create a plan to deal with it.

KlangFool
KlangFool- I always love reading your post. I like how you handle your money and your portfolio. What is the Larry mini
portfolio? How do you manage 3 different portfolio using taxable, IRA and 401k?
Mini Larry = 10% small cap value plus 10% intermediate term Treasury.

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
Leesbro63
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Joined: Mon Nov 08, 2010 3:36 pm

Re: Do you trust the current value of your portfolio?

Post by Leesbro63 »

TomatoTomahto wrote: Thu Apr 01, 2021 11:27 am I am ridiculously conservative and discount our net worth around 50%. We could get by on a 1-2% withdrawal rate.
I hope TomatoTomahto sees my reply and answers, even though his post is over a year old.

TT: Are you saying that you can by on a 1-2% withdrawal rate NOW or after your assets decline by 50%?

Also, is it 1% or 2%. Sounds like a "mere 1%" but it's really 100%. Will you live on $100,000 per year or $200,000 per year? (Just number I pulled, for example).

I'm also thinking of starting a post for Bogleheads who plan a 2% or lower SWR. I'd like to hear how many there are and talk about it.
User avatar
TomatoTomahto
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Joined: Mon Apr 11, 2011 1:48 pm

Re: Do you trust the current value of your portfolio?

Post by TomatoTomahto »

Leesbro63 wrote: Sun May 22, 2022 7:32 am
TomatoTomahto wrote: Thu Apr 01, 2021 11:27 am I am ridiculously conservative and discount our net worth around 50%. We could get by on a 1-2% withdrawal rate.
I hope TomatoTomahto sees my reply and answers, even though his post is over a year old.

TT: Are you saying that you can by on a 1-2% withdrawal rate NOW or after your assets decline by 50%?

Also, is it 1% or 2%. Sounds like a "mere 1%" but it's really 100%. Will you live on $100,000 per year or $200,000 per year? (Just number I pulled, for example).

I'm also thinking of starting a post for Bogleheads who plan a 2% or lower SWR. I'd like to hear how many there are and talk about it.
My answer is not intentionally evasive; it’s complicated. My wife is still working for a paycheck, so although I’m retired, there’s still cash coming in and we spend a bit more than “necessary.”

Short answer is that we could get by on a 1% withdrawal rate AFTER our portfolio is reduced by 50% IF our SS and pensions stayed solvent. It’s of course not what we are hoping for. I’m just a “belt AND suspenders AND another belt” kind of guy. I demonstrate this, for example, in my silly home energy planning: solar panels AND batteries AND generators; my financial planning is no less silly.
I get the FI part but not the RE part of FIRE.
Leesbro63
Posts: 10640
Joined: Mon Nov 08, 2010 3:36 pm

Re: Do you trust the current value of your portfolio?

Post by Leesbro63 »

TomatoTomahto wrote: Sun May 22, 2022 7:51 am
Leesbro63 wrote: Sun May 22, 2022 7:32 am
TomatoTomahto wrote: Thu Apr 01, 2021 11:27 am I am ridiculously conservative and discount our net worth around 50%. We could get by on a 1-2% withdrawal rate.
I hope TomatoTomahto sees my reply and answers, even though his post is over a year old.

TT: Are you saying that you can by on a 1-2% withdrawal rate NOW or after your assets decline by 50%?

Also, is it 1% or 2%. Sounds like a "mere 1%" but it's really 100%. Will you live on $100,000 per year or $200,000 per year? (Just number I pulled, for example).

I'm also thinking of starting a post for Bogleheads who plan a 2% or lower SWR. I'd like to hear how many there are and talk about it.
My answer is not intentionally evasive; it’s complicated. My wife is still working for a paycheck, so although I’m retired, there’s still cash coming in and we spend a bit more than “necessary.”

Short answer is that we could get by on a 1% withdrawal rate AFTER our portfolio is reduced by 50% IF our SS and pensions stayed solvent. It’s of course not what we are hoping for. I’m just a “belt AND suspenders AND another belt” kind of guy. I demonstrate this, for example, in my silly home energy planning: solar panels AND batteries AND generators; my financial planning is no less silly.
Thanks for the quick reply. Very insightful. So SS/Pension is your bedrock. Does that 50% drop start from a year ago when you first posted that, or from now, about 10-20% lower (my guesstimate)? Which is really a 60ish drop.

If after all that saving, would you view it as a tragedy if all that stock/bond money died and went to money heaven, and you had to live on less than 1/2 of 1% of your peak?
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TomatoTomahto
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Re: Do you trust the current value of your portfolio?

Post by TomatoTomahto »

Leesbro63 wrote: Sun May 22, 2022 8:10 am
TomatoTomahto wrote: Sun May 22, 2022 7:51 am
Leesbro63 wrote: Sun May 22, 2022 7:32 am
TomatoTomahto wrote: Thu Apr 01, 2021 11:27 am I am ridiculously conservative and discount our net worth around 50%. We could get by on a 1-2% withdrawal rate.
I hope TomatoTomahto sees my reply and answers, even though his post is over a year old.

TT: Are you saying that you can by on a 1-2% withdrawal rate NOW or after your assets decline by 50%?

Also, is it 1% or 2%. Sounds like a "mere 1%" but it's really 100%. Will you live on $100,000 per year or $200,000 per year? (Just number I pulled, for example).

I'm also thinking of starting a post for Bogleheads who plan a 2% or lower SWR. I'd like to hear how many there are and talk about it.
My answer is not intentionally evasive; it’s complicated. My wife is still working for a paycheck, so although I’m retired, there’s still cash coming in and we spend a bit more than “necessary.”

Short answer is that we could get by on a 1% withdrawal rate AFTER our portfolio is reduced by 50% IF our SS and pensions stayed solvent. It’s of course not what we are hoping for. I’m just a “belt AND suspenders AND another belt” kind of guy. I demonstrate this, for example, in my silly home energy planning: solar panels AND batteries AND generators; my financial planning is no less silly.
Thanks for the quick reply. Very insightful. So SS/Pension is your bedrock. Does that 50% drop start from a year ago when you first posted that, or from now, about 10-20% lower (my guesstimate)? Which is really a 60ish drop.

If after all that saving, would you view it as a tragedy if all that stock/bond money died and went to money heaven, and you had to live on less than 1/2 of 1% of your peak?
I should have mentioned RMDs. We have no debt and our home energy cost is negative (we run a small profit). Taxes and maintenance are the biggest expenses, followed by food and insurance.

I don’t track it carefully, but our indexed portfolio would be down maybe 20%, but we are still accumulating via salary/bonus/RSUs, so net net I think we are down somewhere around 5%.

We have one child who will benefit from a trust, for the others the trusts going to $0 would be unfortunate but not a problem. It would suck seeing all that money go poof, but I think we’d have bigger problems in that case. Our savings were never a hardship or unpleasant, we treat ourselves well, so aside from physical dangers (lack of food, violence, etc.), I don’t see a possible tragedy in our future.
I get the FI part but not the RE part of FIRE.
Leesbro63
Posts: 10640
Joined: Mon Nov 08, 2010 3:36 pm

Re: Do you trust the current value of your portfolio?

Post by Leesbro63 »

TomatoTomahto wrote: Sun May 22, 2022 8:35 am
Leesbro63 wrote: Sun May 22, 2022 8:10 am
TomatoTomahto wrote: Sun May 22, 2022 7:51 am
Leesbro63 wrote: Sun May 22, 2022 7:32 am
TomatoTomahto wrote: Thu Apr 01, 2021 11:27 am I am ridiculously conservative and discount our net worth around 50%. We could get by on a 1-2% withdrawal rate.
I hope TomatoTomahto sees my reply and answers, even though his post is over a year old.

TT: Are you saying that you can by on a 1-2% withdrawal rate NOW or after your assets decline by 50%?

Also, is it 1% or 2%. Sounds like a "mere 1%" but it's really 100%. Will you live on $100,000 per year or $200,000 per year? (Just number I pulled, for example).

I'm also thinking of starting a post for Bogleheads who plan a 2% or lower SWR. I'd like to hear how many there are and talk about it.
My answer is not intentionally evasive; it’s complicated. My wife is still working for a paycheck, so although I’m retired, there’s still cash coming in and we spend a bit more than “necessary.”

Short answer is that we could get by on a 1% withdrawal rate AFTER our portfolio is reduced by 50% IF our SS and pensions stayed solvent. It’s of course not what we are hoping for. I’m just a “belt AND suspenders AND another belt” kind of guy. I demonstrate this, for example, in my silly home energy planning: solar panels AND batteries AND generators; my financial planning is no less silly.
Thanks for the quick reply. Very insightful. So SS/Pension is your bedrock. Does that 50% drop start from a year ago when you first posted that, or from now, about 10-20% lower (my guesstimate)? Which is really a 60ish drop.

If after all that saving, would you view it as a tragedy if all that stock/bond money died and went to money heaven, and you had to live on less than 1/2 of 1% of your peak?
I should have mentioned RMDs. We have no debt and our home energy cost is negative (we run a small profit). Taxes and maintenance are the biggest expenses, followed by food and insurance.

I don’t track it carefully, but our indexed portfolio would be down maybe 20%, but we are still accumulating via salary/bonus/RSUs, so net net I think we are down somewhere around 5%.

We have one child who will benefit from a trust, for the others the trusts going to $0 would be unfortunate but not a problem. It would suck seeing all that money go poof, but I think we’d have bigger problems in that case. Our savings were never a hardship or unpleasant, we treat ourselves well, so aside from physical dangers (lack of food, violence, etc.), I don’t see a possible tragedy in our future.
Thanks for the honest replies. It’s helpful to see how others deal with Boglehead investing/saving/spending/living.
retired early&luv it
Posts: 137
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Re: Do you trust the current value of your portfolio?

Post by retired early&luv it »

My sister refused to listen to several of us, she decided to retire based on the retirement advice she got from a commissioned broker that had her in high load fee funds. She turned 62 in Dec 2007 and retired then, just before the financial crisis. Needless to say, her retirement did not go as planned. And she later had to get a job again.

Do not use the 4 percent rule when the markets are highly overvalued.
jebmke
Posts: 25476
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Location: Delmarva Peninsula

Re: Do you trust the current value of your portfolio?

Post by jebmke »

Leesbro63 wrote: Sun May 22, 2022 7:32 am I'm also thinking of starting a post for Bogleheads who plan a 2% or lower SWR. I'd like to hear how many there are and talk about it.
This poll isn't BH but many of the folks who post here have similar investing philosophies.
https://www.early-retirement.org/forums ... 14017.html

I recall often seeing posts on BH by people who state that SS + Pension cover a large part of their spending -- a few even at 100%. Whether they planned it that way is another subject. the concept of SWR and especially "the number" were not really a thing for the people of my generation (I'll be 70 next year) -- I know it wasn't on my radar screen.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
Leesbro63
Posts: 10640
Joined: Mon Nov 08, 2010 3:36 pm

Re: Do you trust the current value of your portfolio?

Post by Leesbro63 »

jebmke wrote: Sun May 22, 2022 10:49 am
Leesbro63 wrote: Sun May 22, 2022 7:32 am I'm also thinking of starting a post for Bogleheads who plan a 2% or lower SWR. I'd like to hear how many there are and talk about it.
This poll isn't BH but many of the folks who post here have similar investing philosophies.
https://www.early-retirement.org/forums ... 14017.html

I recall often seeing posts on BH by people who state that SS + Pension cover a large part of their spending -- a few even at 100%. Whether they planned it that way is another subject. the concept of SWR and especially "the number" were not really a thing for the people of my generation (I'll be 70 next year) -- I know it wasn't on my radar screen.
This is a great find! Looks like there is a higher-than-expected percentage of 2%ers/100x ers.
Leesbro63
Posts: 10640
Joined: Mon Nov 08, 2010 3:36 pm

Re: Do you trust the current value of your portfolio?

Post by Leesbro63 »

retired early&luv it wrote: Sun May 22, 2022 10:11 am My sister refused to listen to several of us, she decided to retire based on the retirement advice she got from a commissioned broker that had her in high load fee funds. She turned 62 in Dec 2007 and retired then, just before the financial crisis. Needless to say, her retirement did not go as planned. And she later had to get a job again.

Do not use the 4 percent rule when the markets are highly overvalued.
And yet 4% IS the number for high valuation times. For lower valuation retirement dates the number is even higher than 4%.
pasadena
Posts: 2337
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Location: PNW

Re: Do you trust the current value of your portfolio?

Post by pasadena »

KlangFool wrote: Sun May 22, 2022 6:11 am
Bama12 wrote: Sun May 22, 2022 12:40 am
KlangFool wrote: Thu Apr 01, 2021 12:47 pm OP,

A) I keep 3 years of expense in CASH as my emergency fund and keep it separate from my portfolio.

B) I set a target for my 60/40 portfolio. At this moment, it is 1.65 million.

1) When it reaches the target, I sell 30K and pay down the mortgage. And, I buy about $2,000 worth of physical Gold or Silver.

2) I reset the target to be 30K higher. After harvesting 30K, the portfolio would be 1.62 million and the new target would be 1.68 million.

3) Essentially, for every 60K increases in my portfolio, I take away about 30K and keep 30K in my portfolio.

In summary, I have a plan to harvest the portfolio if it goes too well. And, I have a plan to protect myself if the portfolio crashes.

What is your plan?

If you are worried enough, create a plan to deal with it.

KlangFool
KlangFool- I always love reading your post. I like how you handle your money and your portfolio. What is the Larry mini
portfolio? How do you manage 3 different portfolio using taxable, IRA and 401k?
It is still one portfolio for me. I managed with a spreadsheet.

KlangFool
I'm curious - what would your plan look like if you didn't have a mortgage to pay down? What would you do with the "harvest"?
KlangFool
Posts: 31526
Joined: Sat Oct 11, 2008 12:35 pm

Re: Do you trust the current value of your portfolio?

Post by KlangFool »

pasadena wrote: Sun May 22, 2022 11:36 am
KlangFool wrote: Sun May 22, 2022 6:11 am
Bama12 wrote: Sun May 22, 2022 12:40 am
KlangFool wrote: Thu Apr 01, 2021 12:47 pm OP,

A) I keep 3 years of expense in CASH as my emergency fund and keep it separate from my portfolio.

B) I set a target for my 60/40 portfolio. At this moment, it is 1.65 million.

1) When it reaches the target, I sell 30K and pay down the mortgage. And, I buy about $2,000 worth of physical Gold or Silver.

2) I reset the target to be 30K higher. After harvesting 30K, the portfolio would be 1.62 million and the new target would be 1.68 million.

3) Essentially, for every 60K increases in my portfolio, I take away about 30K and keep 30K in my portfolio.

In summary, I have a plan to harvest the portfolio if it goes too well. And, I have a plan to protect myself if the portfolio crashes.

What is your plan?

If you are worried enough, create a plan to deal with it.

KlangFool
KlangFool- I always love reading your post. I like how you handle your money and your portfolio. What is the Larry mini
portfolio? How do you manage 3 different portfolio using taxable, IRA and 401k?
It is still one portfolio for me. I managed with a spreadsheet.

KlangFool
I'm curious - what would your plan look like if you didn't have a mortgage to pay down? What would you do with the "harvest"?
1) I probably have to ask that question within a year. The mortgage should be paid off by then.

2) Probably increase my cash and physical gold/silver.

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
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